Events

The Security of Continental Natural Gas Supply

March 21, 2005 // 7:30am9:00am
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The Canada Institute of the Woodrow Wilson International Center for Scholars held its third U.S.-Canada energy forum in conjunction with the Canadian Centre for Energy Information. The conference, sponsored by EnCana Corporation, was held at the Wilson Center in Washington, D.C.; the main focus was the security of natural gas supply in North America. Six speakers presented their views via live webcast on the challenges of improving the security of continental natural gas supply. The conference proceedings reflect the topics covered during the discussions. To watch the webcast, follow the links in the See Also box to the right of this screen.

To view the powerpoint presentations by Michael Cleland, Graham Flack and Greg Stringham, please follow the links at the top of the page, where Red Cavaney's remarks are also available for download. For a detailed overview and conference proceedings of the 1st and 2nd cross-border energy forums, please follow the corresponding links posted in the See Also box.

Summary of Presentations

Following welcoming remarks by Lee Hamilton, president of the Woodrow Wilson Center, Gerry Protti, Executive Vice-President, Corporate Relations, EnCana Corporation and the forum's moderator, formally launched the third U.S.-Canada energy forum on the security of natural gas supply. In framing the debate and the issues at stake, he underscored the critical importance for both Canada and the United States to ensure a strong, functional, and reliable continental energy market. A host of regulatory, political, and market-based challenges currently constrain the supply of natural gas in North America to varying degrees. Six panelists representing U.S. and Canadian industry associations as well as the federal governments from both countries outlined the most pressing challenges and obstacles to realizing the full potential of the North American market for natural gas.

Red Cavaney, the president of the American Petroleum Institute, focused his remarks on the shortcomings of U.S. energy policy. Despite critical energy security concerns, he remarked that U.S. energy policy is a "textbook example" of contradictory signals to the market. He said that the politics of encouraging demand for natural gas while simultaneously discouraging supply cannot exist together.

Regulatory obstacles have increased the cost of developing onshore natural gas deposits, while political obstruction has impeded energy companies from investing in a number of proven offshore deposits, including off the coast of Florida. One of the main obstacles in developing new natural gas supplies within the United States is the tedious process for obtaining the required permits. Meanwhile, legal uncertainties resulting from overlapping federal, regional, and municipal jurisdictions have only compounded the problem. As a result, the development of new domestic sources of natural gas lags far behind the country's needs. In fact, Cavaney noted that the United States has increasingly moved in the opposite direction, "narrowing our options by restricting access to plentiful domestic resources [which are] critical for the future." By some estimates, these constraints are depriving the U.S. market by up to a decade's worth of natural gas supply from domestic sources.

He nonetheless underlined his commitment to continue pushing for increased access to these resources and to work closely with counterparts in Canada to meet both countries' energy needs. He concluded with a number of key recommendations: (i) increase access to onshore reserved not already protected as national parks or wildlife refuges; (ii) streamline the costs and procedures for obtaining the required permits; (iii) lift constraints on key offshore areas with high resource potential; (iv) expand access to world gas supply, including liquefied natural gas; and (v) expand infrastructure to deliver natural gas supplies to consumers. Cavaney finished his remarks by stressing that the energy industry needs to do more to tell its story.

Greg Stringham, Vice-President for Markets and Transportation of the Canadian Association of Petroleum Producers, refuted the rumor that Canada's supply of natural gas was dwindling, let alone in a critical situation. He presented data showing the increase in production of Canadian natural gas and noted that several new natural gas wells had recently been drilled (e.g., Talisman Monkman and Shell/Mancal Tay River). He also referred to the development of new, "non-traditional" sources of natural gas in Western Canada such as coalbed methane, as well as important new developments in technology allowing for oil sands production. Finally, he advocated increased cross-border cooperation both at the federal and provincial level as well as better emergency response and crisis prevention mechanisms within the industry.

Graham Flack, Associate Assistant Deputy Minister for Energy Policy at Natural Resources also supported the reliability of Canadian natural gas resources. He further detailed the extent to which North American gas system is integrated, with the continental pipeline system enabling the U.S.-Canada natural gas market to operate as single, borderless economic space. He also explained Canada's efforts to diversify its natural gas supply, citing the example of the potential for future production from methane hydrates. He stressed the importance of pursuing a market-based energy policy, with the role of the federal government focused on promoting long-term security of natural gas supply, strengthening cross-border cooperation through initiatives such as the North American Energy Working Group, and facilitating regulatory initiatives such as the Smart Regulation Initiative, the Atlantic Energy Roundtable, and the Mackenzie Valley Cooperation Plan.

Skip Horvath, the president of the Natural Gas Supply Association, said that the North American natural gas industry is the most robust and well integrated of energy markets around the world. This success is due in part to the market structure, which evolved from a culture of competition to one of cooperation, rather than a heavy regulatory burden as is the case for the electricity market. He commended his Canadian counterparts as "excellent partners" in ensuring the success of such a "collaborative model." Examples of productive bilateral collaboration include the development of procedural guidelines for price indices and the establishment of procedures to maximize natural gas supply while protecting consumers downstream. Nevertheless, he noted the danger of complacency and urged industry and government representatives to continue the cross-border dialogue

Michael Cleland, the president of the Canadian Gas Association, highlighted the need for policy support to boost and accelerate new sources of natural gas supply. In order to promote an increase in supply, however, it will be crucial to gain public support. This in turn calls for a systematic approach to positively change the public's perception of actual energy needs, which currently differ significantly from industry views. Cleland thus suggested a repositioning of natural gas as a component of "sustainability," arguing that other "alternative fuels" (e.g., biofuel, solar energy, etc.) could come to be viewed as the "clean" sources of energy at the expense of natural gas. He stressed the importance of promoting the attributes that make natural gas an attractive source of energy for the general public, namely, its environmental performance, its inherent efficiency, and its adaptability and long-term security. Cleland concluded by saying that the industry needs to work harder on fostering a better understanding of natural gas among the general public and government, adding that environmental concerns and challenges must also be part of the debate.

Finally, James Slutz, Deputy Assistant Secretary for Oil and Natural Gas at the U.S. Department of Energy, concluded the presentations on a more general note, reminding the audience that "energy is the cornerstone of a strong U.S.-Canada relationship." Slutz noted that demand for gas has increased during the last few years, especially as a source of power generation. He said that there is not just one solution to the supply problem (Alaska gas), noting that coal seam gas, once considered "unconventional," is now really conventional and accounts for 9% of supply. He noted, too, that although the United States imports considerable amounts of gas from Canada, its gas exports to Canada have increased considerably during the last decade. He emphasized the increasing interdependence of both economies and recognized the need for further dialogue in meeting North America's demand for natural gas.

The ensuing discussion focused on issues of geology, technology, regulation, public education, and communication with the general public.

The final segment of the forum took place at the Canadian Embassy, which hosted a luncheon for conference participants. Michael J. Tims, Chairman, Peters & Co. Limited, offered the keynote address. In assessing the current state of the market for natural gas in North America, he raised a number of key points regarding: (i) the role and impact of equity financing in the past decade; (ii) the abatement of the "urge to merge" within the industry; (iii) fluctuations in demand for natural gas; (iv) the importance of ongoing grassroots resistance to the development of major energy projects (the "not-in-my-backyard" phenomenon); and (v) the excessive regulatory burden on the energy industry.

Drafted by Gerasimos Antypas

David N. Biette
Director, Canada Institute
(202) 691-4133

  

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